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I know you don't like deficit spending, but I don't think I was particularly rude or dismissive in that recent exchange. I didn't accuse you of magical thinking as you accused me for disagreeing on monetary policy (I save that for the religious debates where I am summarily chastised). I feel that budget hawks continually underestimate the power of extend and pretend, and we may, in fact, be able to do it forever.
No, you're right, you were reasonable in that exchange, and I probably shouldn't have said that. I was the one less able to control my
tonguekeyboard. I guess I was thinking of other comments of yours. If all your comments were like the ones in that exchange, well, I'd prefer it if you'd get further into the weeds of what precisely was going on, but you were certainly civil enough.If by extend and pretend, you mean the current policy, doesn't that end up requiring more of the world's resources each time, and is growing at a faster rate than the US's or world's economy?
I think infinite borrowing can be done at a sustainable rate; just not the one we're at. If it's below inflation, or below economic growth, there's not much of a problem. We're just in a much worse situation than that, and I think the way you tell that isn't by looking at who has e.g. the largest military, but at interest rates, amount of government spending spent on debt, rates of economic growth, etc.
Speaking of magical thinking. To quote Who's Line is it Anyway? "Everything's made up and the points don't matter". Debt is just a human construct. When you see people wax on about there being 200 trillion in ghost credit default swaps ready to doom the world economy when a butterfly in China's housing market flaps its wings it is hard not to just dismiss it all out of hand. MMT is, I think, a result of some institutions evolving to understand and use this concept. If we have the raw resources and the might to decide how they get divvied up, the rest is just semantics.
Sure, debt's just a human construct. But it's one that we currently depend on heavily in order to do things. Like, yeah, we can just not pay people (ignoring the constitution for a second), but then we'll have a harder time raising enough money to do things, because they won't trust the US's promises. (And yes, you can do things without money, but money's kind of how our whole economic system runs, and it's hard to have efficient alternatives.)
To be clear, you're recommending something like a tribute system, since you've mentioned the military? Or is this just divvying up domestic goods? The US is a net importer, I believe. (And incentivizing new innovation and production is an important role of an economic system beyond just dividing existing goods.)
It isn't a tribute system. It is just the implication. These women are not in any danger. https://youtube.com/watch?v=-yUafzOXHPE
If you're borrowing at or below inflation or what have you, you're leaving a ton of resources on the table that you should be trading worthless promises to secure. This is the new world!
So you're saying, yes, the move is to pressure others to buy US debt or otherwise prop up the otherwise insolvent US government.
I'm afraid I mostly didn't track what you were saying in that second-to-last sentence.
Promises only have worth because they can be trusted.
The main thrust here is that we are trading promises (however trustworthy or not) for actual goods. If you can do that with cheap money, as we have been, all the better. Worst case you just inflate the pain away. What matters is the underlying assets, the Oil the car company, the wafer fab, the farms, money is just an idea.
But in order to sell promises and get real goods, you need promises to sell. Promises are expectation of future goods. If you don't uphold those, you'll have to stop selling promises. This makes it harder to get the real goods you want, since you can no longer just offer promises and then pay them back.
Promises are better—that is, you can trade them for more—the more trustworthy you are. Being more profligate with your promises than you can afford tanks the value of your promises and makes it harder to keep getting those real goods from them.
This is precisely where the problem lies. Yes, you can always just inflate it away. The problem is that this has harmful effects. Namely, a change in trade balance. A high inflation rate will mean nobody wants their wealth in dollars, worldwide. A lot of dollars are overseas. For the past while, we've been able to get more stuff from importing than we export, because everyone wants dollars. This is great. Just now we're at a spot where if that changes, suddenly the economy will be a lot worse, as everyone tries to shed dollars, making everything more expensive in dollars, beyond just the direct effect of the increased money supply on inflation. Because the whole US runs on dollars, dollars going down relative to the world economy beyond just the direct effect of inflation is bad. It becomes harder to buy anything, especially things made overseas.
A lot of countries have tried "inflate the pain away." How did it work for them? (Hint: pretty disastrously)
Yes, they didn't control the world's reserve currency. But give the US dollar enough inflation, and it will no longer be the world's reserve currency, as everyone drops it.
Good writeup of basic economic policy and how it could impact currency valuations. Yes this is what happens when a place like Mexico or Venezuela starts reneging on their promises or nationalizing industries, capital flight, to places like the USA! Even it times of total crisis for the whole world, like in 2010, capital still came here and the value of the Dollar actually went up.
Yes if we nationalized every company and didn't pay out investors, stopped paying our debts etc....overnight. The value of the dollar would crater, It would be bad for the future of America, but now I that I'm thinking about it, what is the total value of all assets in the USA? 135 Trillion according to a quick search. That is enough to give every man woman and child ownership over $400,000 dollars (in assets) So a family of four would get $1.6 Million. So it could be an attractive short term play for a certain "Pay me now" segment of the population.
I'm not advocating for anything like that. What I've been saying here all along that within this new landscape of worldwide fiat currencies MMT is the only way to play. You don't go back to a gold or crypto deflationary hoarding mentality where the economy is constrained by tokens of wealth.(This caused a few major problems in the past if you recall)
You treat money like what it is, an idea to be experimented and played with for the betterment of your country, to get the most real resources for the least value in return. To do otherwise is to place your country at a major handicap for no reason other than stubbornness. As I have pointed out several times the USA is uniquely positioned to take this theory as far as it can be pushed due among other things to the complete financial, technical and military dominance that has allowed it to become the world's #1 reserve currency.
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